Althouse: "In an angry hearing peppered with shouts and potty talk, Goldman Sachs brass doggedly insisted Tuesday they have no regrets about dubious mortgage deals that soaked investors."

April 28, 2010

"In an angry hearing peppered with shouts and potty talk, Goldman Sachs brass doggedly insisted Tuesday they have no regrets about dubious mortgage deals that soaked investors."

Pepper... potty... brass... dogs... soaking.... The Daily News madly mixes the metaphors as it challenges us to understand who, if anybody, are the good guys in the big showdown.

The potty talk was the repeated use of the word "shitty," which began in some Goldman Sachs email, and then got flung back at them by Carl Levin, who somehow thought it was a good idea to try to intimidate the Wall Greed Guys with lines like "Your own employees believed they are crap, a piece of junk, or a shitty deal."

NSFW video:

If your scatalogical stream of consciousness flows like mine, you may be thinking about the "soaked investors" being soaked in shit — something like that scene in "Slumdog Millionaire."

But the old expression "soak the rich" was not originally based on an image of dunking the rich in a vat of water or other liquid or somehow hosing them down or otherwise wetting them. The original etymology of "soak" is "suck." So "soak the rich" is more like suck the rich dry. I haven't been able to Google that answer successfully (suck-sessfully, as Bob Dylan would say). But I wondered about this expression back in 1990, when we had to look things up in real books. Take my book-learned word for it and don't picture those "soaked investors" drenched in shit (or anything else). Picture them dessicated. Not wet.

98 comments:

X said...: Thank you Carl Levin! We've been needing a catchphrase to describe the Age of Obama. Square Deal, New Deal, New Frontiers, and now, The Shitty Deal.; 4/28/10, 8:38 AM
Original Mike said...: Alpha Liberal (in the Jack-in-the-Pulpit thread) said: "Great hearings today in the Senate. Sen. Carl Levin nailed Goldman Sachs for selling a "shitty deal" (their own words) to their clients.

I eagerly anticipate seeing how cons blame the government for that one."

Another view of Carl Levin's awesomeness:

John Hinderaker said: "The Senators, seemingly without exception, are embarrassingly ignorant of modern risk management techniques. They really don’t seem to understand how and why firms like Goldman Sachs hedge their exposure to various economic trends. . . . While not a single Senator distinguished himself, the most embarrassing was Carl Levin. He repeatedly misread emails and failed to understand the economics of Goldman’s transactions. . . . It didn’t appear that a single Senator understands what is involved in making a market in a security.”; 4/28/10, 8:39 AM
Briane said...: It won't be Congress doing the soaking -- or sucking. The financial reform package -- which may or may not get a vote -- isn't going to do much, in my estimate, to stop this kind of dealing.

What I haven't heard yet -- and admittedly I haven't been reading the stories in-depth so far -- is what was being said to sell these deals to clients. Fab said he sold to "widows and orphans," but I doubt that "widows and orphans" were buying billions of dollars worth of subprime mortgage investments. From The Guardian:

"The SEC's prosecution of Goldman focuses on a single transaction in which the firm is charged with tricking clients into investing in a mortgage package known as a synthetic CDO that was filled with doomed home loans. Several similar transactions have since come to light."

But who was buying those packages, and how sophisticated did they THINK they were, and what was told to them?

Again, the Guardian:

"The thing customers are buying is exposure," said Blankfein. "The thing they're buying gives them the risk they want. They're not coming to us because of what our views are."

That may be true. If Goldman packaged "shitty" deals and then didn't oversell them -- telling people that they're not great investments, or not telling them anything -- what did they do wrong? Used car salesmen sell junky cars all the time, and we as a society simply say that they can't lie about the condition of the car and they're bought as-is.

The "as-is" phrase exempts LOTS of people who've sold "shitty" products to people.

We shouldn't let our lack of oversight of the markets, and our anger about it, be misguided. It may be that the rich were only soaking the rich, and we all got dragged along for the ride.

THAT's what we should be angry about and looking at legislating. Shouting at bankers for a few hours isn't going to change a culture in which people were allowed to borrow hundreds of thousands of dollars based solely on a credit score.; 4/28/10, 8:42 AM
Anonymous said...: 1700 pages of legislation, a new billion bail-out fund, the billion dollar expense of several new 'watch-dog' agencies should filter all the 'shit' out of the system.

Yeah, right. Keep polishing this turd Senator Levin.; 4/28/10, 8:43 AM
dbp said...: These clowns clearly haven't got a clue about what firms like Goldman Sachs actually do. So, yeah it sounds like a great idea to have them regulate what they don't understand.

Next on the agenda: Let's regulate how Boeing designs their planes. Take those noisy engines off the wings and put them inside.; 4/28/10, 8:46 AM
Briane said...: Another story about the Goldman/SEC charges talks about how customers were fairly certain that Goldman was taking advantage of them -- but they still did business with them, either hoping they were not the ones being suckered, or because they were still making money even though they were being suckered.

So if Goldman lied to its customers, and its customers KNEW THAT, the customers bear some blame here, too. On an individual level, I cannot sue for misrepresentation if I didn't rely on the false claims.

What Goldman did seems likely to have violated SEC regulations -- I'm no expert in that -- but they violated SEC regulations in part because the government didn't enforce them, and in part because its customers were only to happy to deal with a bank they knew was cheating them.

http://money.cnn.com/2010/04/16/news/companies/goldman_sachs_questions.fortune/index.htm; 4/28/10, 8:48 AM
TMink said...: Levin does not understand what Goldman Sachs does. He is not a particularly intelligent or well informed man.

Trey; 4/28/10, 8:48 AM
TMink said...: Sorry dbp, your point posted while I was composing. You got it right first, and your post was funnier too.

Trey; 4/28/10, 8:50 AM
KCFleming said...: Levin was so happy, thinking he had a 'gotcha' moment. Then he had to milk it. Criminey, I thought he might wet himself.

Comrade X is right:

FDR = The New Deal
Obama = The Shitty Deal; 4/28/10, 8:54 AM
Lem Vibe Bandit said...: So "soak the rich" is more like suck the rich dry.

I'm going to need a straw offset ;); 4/28/10, 8:56 AM
Ron said...: "The Shitty Deal" is the new "Snakes on a Plane."

Maybe the use of Pepper and Potty is the Post's advanced product placement for Ms. Paltrow's role in the new Iron Man 2, opening very soon...Hey, I've heard weirder stretches than this!; 4/28/10, 9:00 AM
SteveR said...: The Senate looking at Goldman Sachs, isn't that like the hens guarding the foxhouse?; 4/28/10, 9:02 AM
I'm Full of Soup said...: Senator Levin and his brother have been representing Michigan in Congress for 30 years or so. His bloviating yesterday showed why America got in the horrid financial condition it is in.

I fear someone somewhere is sharpening a guillotine. So I plan to buy stock in a company that makes cast-iron neck protectors.; 4/28/10, 9:07 AM
Peter V. Bella said...: This is the new McCarthyism. This too shall pass when people get sick and tired of their elected officials acting like hormonal teenage bullies in the locker room.

The House and Senate have sunk to new lows in their behavior. Debasing, dehumanizing, and verbally abusing people who testify before them.

The only people who enjoy this show are the right and left extremists- the so called minority bases. They are the choir being preached to.; 4/28/10, 9:09 AM
Unknown said...: It's funny to see all these "Tim McVeigh Wannabes" praying that Wall Street maintains it's Reaganite deregulation - as they (you) do not care about the economy of this country - all you care about is the numbers on your online bank statement. Newsflash: if the dollar is completely devalued, all those zeros won't mean "shit."; 4/28/10, 9:11 AM
Anonymous said...: What a vile dog and pony shot!

Seldom have so many lies been spouted in such a short time in one place.

Both the Democrats and Republican forced banks to make bad loans in order to end the alleged practice of "redlining." The fed caused the mortgage crisis in the name of our hallowed religion of Diversity.

The Democrats are up to their ears in Goldman Sachs money. The Obama administration is full of Goldman Sachs assholes.

President Obama is the most hellacious, shameless liar I've ever seen. And he flips 180 degrees from day to day. Then pretends he never told exactly the opposite lie the day before.

President Lying Son-of-a-Bitch even convinced Congress to start a committee devoted to lowering the deficit. Where, or where, did that deficit come from? I haven't got a clue.

Even for a cynical old fart like me, this liar is just too fucking much.; 4/28/10, 9:12 AM
garage mahal said...: Typical peasant mentality. The rich can never be at fault. They EARNED those taxpayer funded bonuses! Even when it's plain as day they fleeced their customers of their retirement, and conned them out of their life savings, the useful idiots and their misdirect anger will storm the gates over a program giving them access to affordable health care. Bizarre.; 4/28/10, 9:13 AM
Anonymous said...: This comment has been removed by the author.; 4/28/10, 9:14 AM
MadisonMan said...: I wonder how much in campaign donations each of the grandstanding Senators have received from Goldman Sachs.

Why do I think they'll be slinking back to Goldman Sachs with hat in hand at some point?; 4/28/10, 9:19 AM
Anonymous said...: This comment has been removed by the author.; 4/28/10, 9:20 AM
Automatic_Wing said...: Here's the thing: The deal that Goldman brokered was basically a bet on which way the housing market would go. Paulson bet it would go down and ACA bet it would keep going up. Well, the market went in the shitter and Paulson made a bunch on money at ACA's expense.

But Paulson had no inside information that the market would take a dive, he just had a different opinion than ACA and he happened to be right this time.

So my question is: If the housing market had stayed buoyant for another 12-18 months and ACA had made a bunch of money at Paulson's expense, would the SEC have sued Goldman for not letting Paulson know that ACA were the ones betting long?; 4/28/10, 9:22 AM
roesch-voltaire said...: Goldman sold the Abacus 2007-AC1 transactions, knowing the product was designed to fail, favoring its own interests and one of its clients over another. Further it failed to disclose how the portfolio was assembled. This at least violates Goldman's own code of ethics: "Our Clients' interests always come first." But of course in an era when the wall between banks and hedge funds has been dissolved who becomes the "client?" Those of us invested in the wrong pension fund get the crappy end of the deal in this exchange. One would think congress might want to change this, but of course the new bill, as it stands today, will not contain the risk to the shadow banking system from hedge funds and this mess will continue, but congress( both dems and Reps) gets to pretend they are fixing the system. I think everyone one understands that the tax payer will continue to support the hedge fund billionaires with great tax loopholes who will pass on more of the same.; 4/28/10, 9:23 AM
Anonymous said...: After watching Carl Levin and the bunch put their utter ignorance on full display, I can only imagine what the bill will look like.

Picture a bunch of horse and buggy experts linking up to write regulations on how a combustion engine should work.

Levin's stupidity was front and center as he kept demanding that, when market making, Goldman's sale to a customer and simultaneous or subsequent short of the same security was somehow nefarious.

Levin apparently believes that a sale of a security should come with some product guarantee or affirmation of quality.

I guess it never occurred to Levin that sale of any security by anyone to anyone represents a short by the seller.

Both parties expect the security to go opposite directions.

But I guess Levin apparently wants some law that says that when someone sells a security, they are representing to the buyer that they think it is quality, properly valued, and only going up.

I've never seen a better evidence why the government should not run anything, when our great deliberative Senators are so ignorant of that which they oversee.

But, sadly, they are complete idiots, and yesterday convinced me more than ever that we're doomed unless we throw the incompetent slime-balls out.; 4/28/10, 9:27 AM
Anonymous said...: The Obama administration is in favor of another application of the Community Reinvestment Act in order to halt "redlining."

The Hair of the Dog That Bit Me approach.

So, the underlying cause of the mortgage meltdown, which was the Fed's determination to force banks to make bad loans to unqualified buyers is... going to get a replay.

And, you're worried about Goldman Sachs?; 4/28/10, 9:27 AM
KCFleming said...: Scenes of things to come in the US of Chicago:

"Two Illinois state legislators are suggesting that the National Guard should be mobilized in Chicago to assist the Chicago Police Department’s efforts to reduce the cities violent crime, which is said to be largely gang and drug related.

John Fritchey and LaShawn Ford, both Democrats, believe that armed National Guardsmen working the streets of Chicago with the police department would send a strong message to the community that there is an effort to reduce crime in Chicago.

Chicago has had 113 homicides this year as of April 27. That is a increase from 109 homicides at the same time last year."

Heckuva job there in Chi-town, Barry!; 4/28/10, 9:32 AM
rhhardin said...: It must be aimed at some other audience, or they're all trying to prove they're idiots.

The best take is Hinderaker (via instapundit); 4/28/10, 9:34 AM
Automatic_Wing said...: @Voltaire-guy: You do know that ACA is a sophisticated institutional investor, not some poor widow with a high school education?

ACA selected a group of securities that Paulson, the counterparty, offered. They lost lost their bet. So what?; 4/28/10, 9:38 AM
Anonymous said...: So my question is: If the housing market had stayed buoyant for another 12-18 months and ACA had made a bunch of money at Paulson's expense, would the SEC have sued Goldman for not letting Paulson know that ACA were the ones betting long?

This is a good question.

Short sells play an important function in the market aside from what the Senators kept calling 'a bet'.

Short sells send a signal that someone thinks the market is overvalued.

Enough short sells puts downward pressure on some market.

Wouldn't it have been good for the housing bubble, if more had shorted to signal that they thought it was a bubble?

I have friends that manage very large portfolios that didn't touch the mortgage securities because they didn't like the ratings methods for the pool (and who saved themselves a lot of lost money by not so investing) but then who swooped in and loaded up on undervalued Mortgage securities when the market tanked and threw out the baby with the bathwater

So in a financial and trading market, the issue is never merely a question of "Crap" or "junk" as Levin seemed to fixate on.

The issue is always crap or junk at what price?; 4/28/10, 9:39 AM
Dust Bunny Queen said...: These Senators are an embarrassment to all thinking people.

They haven't the slightest clue on how the markets work, about economics, making a market in securities,the strategy of hedging long positions by going short, managing mutual funds, bond portfolios, international currency, arbitrage.....anything!!. They haven't any idea how to read a balance sheet, a P&L. They probably can't even balance their own checkbooks.

Yet they sit there pontificating, gas bagging about things in which they have zero competence to people who have spent their lives in a very difficult and highly skilled field.

Did somethings go wrong? You bet they did. Were some people greedy. Well, duh. Did the government agencies cause the problems. YES. Did our existing programs fail to oversee the government caused catastrophe. Yup. Should we let businesses and agencies who fail go bankrupt or be dismantled. HELL YES.

Did we stop any of it. Hell no.

It is like we have Ralph Kramden piloting our 787 jet liner of state. God help us.

So instead of having people who can at least understand what the fuck is going on and what the hell happened....we now have the Keystone Cops running around and banging into each other.; 4/28/10, 9:42 AM
Dust Bunny Queen said...: Short sells send a signal that someone thinks the market is overvalued.

Enough short sells puts downward pressure on some market.

Wouldn't it have been good for the housing bubble, if more had shorted to signal that they thought it was a bubble?

Yes. You are exactly right.

I have friends that manage very large portfolios that didn't touch the mortgage securities because they didn't like the ratings methods for the pool (and who saved themselves a lot of lost money by not so investing) but then who swooped in and loaded up on undervalued Mortgage securities when the market tanked and threw out the baby with the bathwater

I don't manage 'very large' portfolios, but I do have many clients with portfolios in the low 7 figures within which we construct our own bond/income portfolios. I quit buying "new" FNMA and FMac about 5 years ago when the underlying composition of the pools began to deteriorate AND the market became flooded with the damned things. Too many on the market for my taste (and for supply and demand purposes) and and indication of being over priced. Plus as interest rates became low and stayed low....the purchase of almost any bond/fixed coupon product was a long term guaranteed loser.; 4/28/10, 9:49 AM
I'm Full of Soup said...: NO one in govt was held accountable for 911. No one in govt has been held accountable for the financial meltdown. No one in govt has yet been held accountable for insolvent state and city govt pension funds.

As DBQ said, these pukes need to learn the importance of a balance sheet! That is our Achilles heal today.; 4/28/10, 9:49 AM
Anonymous said...: They haven't the slightest clue on how the markets work, about economics, making a market in securities,the strategy of hedging long positions by going short, managing mutual funds, bond portfolios, international currency, arbitrage.....anything!!. They haven't any idea how to read a balance sheet, a P&L. They probably can't even balance their own checkbooks.

No, these bastards are far worse than that.

They're cynically selling a lie for political gain.

These liars know that the Fed caused the mortgage meltdown. Many of them, if not most of them, voted for those measures that forced banks to lend to unqualified buyers.

This is one of the most cynical, vicious dog and pony shows I've ever witnessed.

Every one of those assholes who participated in it knows that they are lying. This is all about laying the blame, and laying the groundwork for another scam.; 4/28/10, 9:49 AM
Night2night said...: A lot of people made money off of subprime mortgages, and until things went south, a lot of political interests were served. Were Congressional Democrats grandstanding? Of course, that's what all politicians do. Was the personal behavior of Goldman Sachs people reprehensible? Of course, that's what happens when everything gets eclipsed by the profit motive.

Today's question (which we like to ignore in favor of cheering for our respective sides): How do we reasonably reduce the probability of these type of systemic collapses without strangling the economy? I'm loathe to trust the Democratic solution because it's always the same solution. More government. Market fails, more government; government fails, more government.

Good op-ed by David Brooks in the NYT yesterday on the same topic.

The Goldman Drama - nytimes.com; 4/28/10, 9:51 AM
Original Mike said...: "Goldman sold the Abacus 2007-AC1 transactions, knowing the product was designed to fail, favoring its own interests and one of its clients over another."

I'm not going to pretend I understand all this, but per Maguro, I don't think ACA can reasonably be considered Goldman's "client" in this transaction.; 4/28/10, 9:58 AM
Anonymous said...: If they were really interested in financial reform they'd be looking into Fannie Mae and Freddie.

All the shit in the system flowed down stream form them.; 4/28/10, 10:03 AM
Opus One Media said...: shoutingthomas said...
"Even for a cynical old fart like me, ...."

Well you got the fart part right.; 4/28/10, 10:10 AM
Opus One Media said...: LarsPorsena said...
"If they were really interested in financial reform they'd be looking into Fannie Mae and Freddie."

Remind me again Lars when Fannie and Freddie bundled up mortgages and then rebundled them two more times, went over to Moodys and S&P and got "AAA grade" stamped on them......I just can't seem to remember that instance.; 4/28/10, 10:12 AM
Opus One Media said...: Just for hoots, I started counting the number of times Blankfein used the expression "I don't know anything about that, it wasn't something that I was involved in" or words to that effect. I started at 7p. By 745p the count was 16 so I just quit.

I wanna be the CEO of Goldman. Obviously you don't have to know anything about your business.; 4/28/10, 10:14 AM
Anonymous said...: Today's question (which we like to ignore in favor of cheering for our respective sides): How do we reasonably reduce the probability of these type of systemic collapses without strangling the economy?

Here's my take:

1. We need Wells Fargo and Chase to function. We don't need Goldman Sachs. So, we need to firewall the commercial banks off from the I-banks, and mandate that the commercial banks must keep everything on the balance sheet that has any probability at all of recourse, and dictate proper capital reserves and leverage limits.

If the I-banks want to blow up and take their shareholders down with them, so be it.

2. The trough of cheap government credit must close. The housing bubble was broad and deep, and such a large bubble can only be caused by systemic, macro mismanagement. Look no further than Greenspan's years of cheap credit from the fed to find the culprit and the main flow that inflated the bubble. Second to that was Fannie/Freddy and their inexhaustible supply of cheap government money, all pumped into housing.

The sum total of decades of Fannie/Freddy money, with the more recent icing of Greenspan's flood of money, caused both a bubble and the perception that the residential housing sector can only go up up up.

3. No such think as too big to fail, and a restoration of moral hazard. As long as the government signals that they'll bail out X or Y, two things will always happen: investors will see X and Y as less risky for the return, and flow money toward them, and X and Y will play fast and loose to maximize their profits.

We need to restore the sense that if you invest with a stupid i-bank or car company and they failed, you will lose it all. Otherwise, investment decisions get sloppy, and money is put with corrupt or bad management.

That's three, but its a start.; 4/28/10, 10:18 AM
Hoosier Daddy said...: Typical peasant mentality. The rich can never be at fault. They EARNED those taxpayer funded bonuses!

Seriously garage,after reading the comments on here this is the best response is what you come up with? Seriously is that the extent of your reading comprehension in which all you can kick out is a "workers of the world unite" snark that somehow brings ObamaCare into it? Put the vodka down comrade.

I'm not seeing anyone 'defending' Goldman Sachs as much as they are lambasting the 'august body' of Senators pontificating on something they know jack all about. If there is going to be any kind of meaningful financial regulation, it would help morons like Levin to get educated first.; 4/28/10, 10:18 AM
Anonymous said...: @HD

Huffpo 6 March 2010

".... "The Congressional Budget Office estimates that Fannie and Freddie added $291 billion to the federal deficit in 2009 and will cost an additional $389 billion to run over the next ten years. However, Fannie and Freddie are currently considered "off budget" meaning the actual cost to run these agencies is not considered by the Office of Management and Budget."

This article contains two nuggets of information. For of all, we are looking at around $600 Billion in taxpayer bailout, assuming the market doesn't take another sharp downturn. That's nothing to sneeze at, and it certainly deserves a lot more press coverage than it has gotten. The second nugget is that all these losses are consider off-budget. So what we are talking about is moving hundreds of billions of dollars of bad assets from off-budget Fannie Mae to off-budget Treasury Department."

Move along. Nothing to see here; 4/28/10, 10:20 AM
Hoosier Daddy said...: Just for hoots, I started counting...

Glad Sesame Street is working for you.; 4/28/10, 10:21 AM
Dust Bunny Queen said...: This comment has been removed by the author.; 4/28/10, 10:23 AM
Anonymous said...: You need to understand....among many other things....tranches.

Which obviously Senator Ensign doesn't understand one iota.

"How can you take a bunch of B rated securities and package them into an A rated security?"

Well, Senator, I'd like to tell you, but first you'd have to understand what a waterfall is, and that would probably take you 2 months to master at your present level of intelligence.

But you sure look good with that hair. And hey, have you lost weight?; 4/28/10, 10:28 AM
Unknown said...: Ann's use of the term 'Obama's Congress' is the key here. Without the connivance of the Democrat caucus, including Barack Hussein Obama in his Senate days, we would not have this mess. Oh, yes, special dishonorable mention to Willie Whitewater and Bobby Rubin for expanding the CRA.

More than a few Republicans, from Dubya on down, saw it coming and tried to stop this train wreck - including John McCain and Kay Hutchison (whatever else you may think of them) - and now we have the spectacle of hypocrites like The Zero, Christopher Dodd (complete with Irish 'cottage'), Slobbering Barney, Henry Waxman, and the rest trying to look outraged as they hope people forget how much the banks, Goldman in particular, gave them in campaign contributions.

Lars is right, this is a huge bailout and Goldman is all for it; that's the most disgusting part of this dog and pony show.

Remember The Zero's promise that nobody making less than a quarter mil will see their taxes rise? Well, he's already started to hedge that by telling the State Media he meant income tax.

As Rush says, everything The Zero says has an expiration date.; 4/28/10, 10:28 AM
Dust Bunny Queen said...: 1. We need Wells Fargo and Chase to function. We don't need Goldman Sachs. So, we need to firewall the commercial banks off from the I-banks, and mandate that the commercial banks must keep everything on the balance sheet that has any probability at all of recourse, and dictate proper capital reserves and leverage limits.

Gee....you mean something like THIS?

"As a collective reaction to one of the worst financial crises at the time, the GSA set up a regulatory firewall between commercial and investment bank activities, both of which were curbed and controlled. Banks were given a year to decide on whether they would specialize in commercial or in investment banking. Only 10% of commercial banks' total income could stem from securities; however, an exception allowed commercial banks to underwrite government-issued bonds. Financial giants at the time such as JP Morgan and Company, which were seen as part of the problem, were directly targeted and forced to cut their services and, hence, a main source of their income. By creating this barrier, the GSA was aiming to prevent the banks' use of deposits in the case of a failed underwriting job.
"

Which was cleverly repealed

November of 1999 Congress repealed the GSA with the establishment of the Gramm-Leach-Bliley Act, which eliminated the GSA restrictions against affiliations between commercial and investment banks. Furthermore, the Gramm-Leach-Bliley Act allows banking institutions to provide a broader range of services, including underwriting and other dealing activities.

Good thing these guys are STILL in charge. Yup....they'll fix everything.

Sigh.................; 4/28/10, 10:31 AM
Anthony said...: Well, the real point of these "hearings" is not to reach any conclusions, it's all about providing appropriate soundbites for the lapdog media to show. It's all propaganda, nothing more or less.; 4/28/10, 10:32 AM
William said...: Synthetic derivatives like modern art were purposefully designed to exist at such a remove from reality as to be incomprehensible to the uninitated. Just as you need an art critic to tell you the meaning and worth of some mess strewn on the floor in a Soho gallery, you need some annoyingly smart kid from Wharton to tell you how the risk levels of various tranches interplay among themselves and against the broader market for that asset class (which didn't exist five years ago) to properly evaluate the worth of an investment instrument that exists more as a fever dream of future income than as anything present in reality. If you act like you understand what's going on, they'll just throw in another layer of abstraction and call it risk management. If, in the prospectus, they clearly state that they are are selling this instrument solely for the profits made in selling this instrument and that they are much smarter than you, then their asses are covered.....Goldman at least made money for its shareholders and was on the right side of the bet. Citibank, AIG, Merrill, Lehman, Bear Stearns et al were not. Shouldn't they be interviewing execs at those institutions. Perhaps Levin could ask Robert Rubin, Stanley O'Neal, or Franklin Raines whether they feel an ethical responsibility to give back the bonueses that they made by adapting policies that ruined their companies and its shareholders.; 4/28/10, 10:54 AM
Hoosier Daddy said...: Good thing these guys are STILL in charge. Yup....they'll fix everything.

Now in anticipation of one of the usual suspects to turn this into a GOP vs Democrat issue, lets look at what El Presidente Clinton had to say about that infamous legislation:

On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence. But I can't blame [the Republicans]. This wasn't something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment.

Oh dear oh dear...see what happens when we try to emulate Europe?; 4/28/10, 10:58 AM
Hoosier Daddy said...: Goldman at least made money for its shareholders and was on the right side of the bet.

And for most liberals today, that's enough justification right there to have the execs walking the Green Mile.; 4/28/10, 11:02 AM
Dust Bunny Queen said...: Now in anticipation of one of the usual suspects to turn this into a GOP vs Democrat issue,

Also in anticipation of the same tired false talking point before I go to work.

There was NOT an actual Clinton surplus. It was a projected surplus.

http://www.craigsteiner.us/articles/16; 4/28/10, 11:04 AM
Joe said...: If you watch some of these clips, one thing that becomes horribly unclear is for whom "these" were shitty deals? For all the talk about how Goldman made money, they didn't profit--there is a huge difference.

Moreover, that is the reality of business. Heaven forbid the internal emails at my company, or any that I worked at, were ever published. The following conversation constantly takes place in companies:

A: This product is crap
B: People want it
A: It's still crap
B: So, people still want it

(It even goes way further than that; customers will even request changes that will make the product shittier.)

And speaking of shitty deals, how's that new health care going?; 4/28/10, 11:16 AM
virgil xenophon said...: Part of this problem can/may be laid at the feet of the fact of the globalization of the world's financial mkts. GS was repealed precisely because American banks couldn't compete with their Euro-behemoth banks which combined Invest. & Commercial banking. And the fear was that eventually, if the trends continued, every large US Bank of both types would end up being bought and owned by foreign banks. Nothing really has changed fundamentally in this regard. So unless EVERYBODY in the world was put under a new son of Glass-Steagall, American banks--indeed our whole banking system--would again fall prey to possible take-over by foreign banks.; 4/28/10, 11:40 AM
I'm Full of Soup said...: Joe:

We used to joke about our deal "Wall of Shame". However we strive to be ethical and don't mislead people but it is a world that warns "let the buyer beware".; 4/28/10, 11:41 AM
Anonymous said...: but it is a world that warns "let the buyer beware"

Not if the current pack of Democrats gets their way.

They want to take care of every risk and bruise.

Unless we throw them out, you'll soon be saying "let the taxpayer beware."

Then note that taxpayer status isn't voluntary, as is being a buyer.; 4/28/10, 11:58 AM
MadisonMan said...: Goldman at least made money for its shareholders and was on the right side of the bet.

A good (but unanswerable) question is: Would Goldman have survived if the Feds had not come in and propped up a good portion of Wall Street?; 4/28/10, 12:16 PM
CatherineM said...: If Goldman did short it's own products, they would have been Lehman. Does Carl Levin realize that? Lehman went Long and lost. The big banks that went long lost and THOSE investors lost everything.

Goldman still trading at $156...guess their investors have some confidence.; 4/28/10, 12:17 PM
Hoosier Daddy said...: I'm wondering if anyone wants to get on the action that is the 'gold bubble' and make any bets on when that one comes crashing down like a ton of gold bricks?; 4/28/10, 12:18 PM
Hoosier Daddy said...: AGoldman still trading at $156...guess their investors have some confidence.

I would too knowing it has the backing of the full faith and credit of the US Treasury.; 4/28/10, 12:25 PM
Opus One Media said...: Let's get a couple things straight.
Selling short or selling long isn't long term. Often trading desks will make hundreds of trades in the same stock in an hour. They borrow shares and replace them making pennies here and there on each trade but doing it in such volume as to make real money.

The issue is someone really does own the stock somewhere and with the potential for manipulation the price dis-associates itself from the value. The price is what the market makers momentum takes it be.

I'm sure you've read of Narvik, Norway that got stuck with about 24 million of this junk that Citi indirectly sold them. The municipality lost ALL. The traders at Citi could have made a fortune on it and probably did.

Some on here are misunderstanding what shorting or going long really means to active traders. Just to put it in perspective, there is a hedge fund in NYC that has about 200 traders in it. One any given day they trade roughly 10% of ALL the trades on the street.; 4/28/10, 12:30 PM
Opus One Media said...: edutcher said...
"More than a few Republicans, from Dubya on down, saw it coming and tried to stop this train wreck"

In the interest of accuracy would you please take a look at what you wrote here...just a suggestion.; 4/28/10, 12:32 PM
Original Mike said...: "I'm wondering if anyone wants to get on the action that is the 'gold bubble' and make any bets on when that one comes crashing down like a ton of gold bricks?"

No thanks. You know the saying: "Markets can remain irrational longer than you can remain solvent."; 4/28/10, 12:34 PM
CatherineM said...: Madison Man - Yes. I don't think they needed it, but with the panic at the time with Morgan Stanley...

Everyone has short memories. Nothing compared to the mortgage crisis, but remember the dot come craze? Everyone and their gradmother thought they would get rich on $100 yahoo stock (at $16 today). All the old farts on WS said it was a fools game, no there there, all speculation but we were told this is the new economy until it crashed. That was 10 years ago. Were the old farts supposed to stop my manicurist from buying stock on Etrade?

What are the chances we were be here again in 2020 inspite of "regulations"?; 4/28/10, 12:36 PM
Hoosier Daddy said...: Let's get a couple things straight....

Coming from the leftard who brags about how he avoids paying taxes this should be really entertaining.; 4/28/10, 12:39 PM
CatherineM said...: Hoosier, the thing is, at the time, they weren't a BHC. They were hedging because of that. Because they could be Bear or Lehman if they didn't. However, they read the tea leaves and acted.; 4/28/10, 12:43 PM
Jeremy said...: Comrade X - "The Shitty Deal" came about during your hero's tenure, Dude.

Obama's merely trying to clean up the shit left behind by G.W. and Company.

Once again; blaming Obama for the misdeeds and lack of oversight via the GOP is just dumb tea bagger bullshit.; 4/28/10, 12:45 PM
Jeremy said...: "However, they read the tea leaves and acted."

They created the tea leaves.; 4/28/10, 12:46 PM
Jeremy said...: "More than a few Republicans, from Dubya on down, saw it coming and tried to stop this train wreck"

Provide any objective reference or evidence to support this bullshit.; 4/28/10, 12:47 PM
Hoosier Daddy said...: Hoosier, the thing is, at the time, they weren't a BHC. They were hedging because of that. Because they could be Bear or Lehman if they didn't. However, they read the tea leaves and acted.

Oh I understand that, my snarky comment was more along the lines that the Fed has Goldman's back which I am sure eases concernes of investors. I mean when we've seen that the Fed will jump in to bail out Goldman (indirectly of course by bailing out AIG who Goldman had more than a few bucks with) and then you have pending legislation that wants to set up a multi-billion bailout fund, one tends to think Goldman is gold. So to speak.

Then you have an unholy number of ex-Goldman folks 'advising' and/or working directly with this administration I'm not inclined to think that anything real bad will happen to them.; 4/28/10, 12:48 PM
Jeremy said...: GOP Filibusters Bank Reform For Third Straight Day, Dems Plan ALL-NIGHT Votes

A real shocker.; 4/28/10, 12:48 PM
CatherineM said...: HdHouse - perhaps the Senators don't understand that Goldman hedged his long position by shorting the housing market. Would Levin have preferred that Goldman ran their business into the ground like Lehman and Bear? Perhaps? Another 32,000 out of work and billions lost?

Over and over, it didn't sound like Senators understand any more than Waxman and the Whitehouse understood that AT&T, Verizon and the others who had to annouce their write downs after HCR was passed, did so because of the laws that they passed.; 4/28/10, 12:50 PM
CatherineM said...: Hoosier, I agree. They are all so intertwined. Republicans, Democrats...It's a joke.; 4/28/10, 12:55 PM
CatherineM said...: I will address the Gold question by saying, by the time the general product hears about Gold or plastics or whatever, the savvy investor are years ahead of you buying for pennies. That was dot come. Venture Capitalists, PE firms invested in little companies that were later bought or became the big tech giants. And they sold that stock in 99, months to a full year before the crash of the Nasdaq; 4/28/10, 12:59 PM
Hoosier Daddy said...: I will address the Gold question by saying, by the time the general product hears about Gold or plastics or whatever, the savvy investor are years ahead of you buying for pennies.

Agreed. You can't find a channel that doesn't have a 'Sell your gold for cash' commercial running which tells me right there that bubble is hitting its bust point. I thought the same thing about the housing market when TLC had shows called Flip This House.; 4/28/10, 1:12 PM
Big Mike said...: Interesting thought experiment. Suppose I'm trying to participate in a deal and Goldman informs me that they will let me participate but, BTW, they are taking the opposite bet.

Based on that I decline to participate. But Goldman is wrong and they lose money but so do I because I failed to participate.

I guess Goldman is not liable for my losses?; 4/28/10, 1:14 PM
Hoosier Daddy said...: Based on that I decline to participate. But Goldman is wrong and they lose money but so do I because I failed to participate.

Well you really didn't 'lose money' because you never put up any to begin with.

I had a similar discussion with my Dad back when the market took the big dump back in 2001-02. He had been semi-retired during the boom years and did very well with his investments up to that point and lamented over how much money he lost. The thing is, he didnt' really lose any money because despite taking a 40% hit to his portfolio, he was still 75% up from his original investment amount. You only 'lose' when you leave with less than you came in with.; 4/28/10, 1:27 PM
Dust Bunny Queen said...: That was 10 years ago. Were the old farts supposed to stop my manicurist from buying stock on Etrade?

We tried.

:-)

Some people listened (my clients did and weren't terribly hurt by the dot.com crash). Others just refused to listen.

I will address the Gold question by saying, by the time the general product hears about Gold or plastics or whatever, the savvy investor are years ahead of you buying for pennies

Also known as the 'Odd Lot Theory' of investing.; 4/28/10, 1:27 PM
Anonymous said...: "Agreed. You can't find a channel that doesn't have a 'Sell your gold for cash' commercial running which tells me right there that bubble is hitting its bust point."

Any other time I'd agree with you but with Greece, Portugal, Spain, downgrades, massive US government borrowing and debt as far as the eye can see.......maybe gold will run a while longer....Of course, if you're not already in it you're too late.; 4/28/10, 1:43 PM
Michael said...: Well, ladies and gentlemen, I hope you saw the spectacle last night of our Senators, on the Senate FINANCE committee no less, grilling the CEO of Goldman Sachs. You might have thought it was Comedy Central you were watching if you knew anything at all about finance, because the Senators' cluelessness was stunning, hilarious, profound and embarrassing. That these people propose to regulate the financial services business is disturbing. I think that Blankfein did a magnificent job of not exploding in frustration at the jaw dropping stupidity of most of the questions and the inability of the questioners to comprehend the answers which were forthright and never evasive. It was simply the saddest example of our Government at work I have ever seen. I wouldn't let one of those people near any business I had.; 4/28/10, 1:57 PM
Michael said...: Roesch-Voltaire: The Abacus deal was not designed to fail. Or to succeed for that matter. It was designed to mirror performance in the housing market. Paulson selected a number of assets to put in the CDO (these were existing assets, not new issue) and the selection agent "kicked out" a large percentage and offered another set of assets some of which were "kicked out" by Paulson. This iteration continued until the pool mirrored what the selection agent believed to be a reflection of the housing market. The synthetic then had a seller in Paulson and a buyer in the long side, each side "betting" that their view of the market was correct. It didn't matter to Goldman if the deal succeeded or failed, they had simply constructed it for the other parties and took a fee for doing so. As it happens, they ended up owning, or holding, a long piece for which they were rewarded with a $90M loss. If their plan was to concoct a genius scheme to trick the buy side into thinking there was no sell side then you have never bought or sold anything in your life that you have actually thought about.; 4/28/10, 2:03 PM
Unknown said...: For all our Lefties in denial over their Messiah, several times during the last decade, any number of Republicans tried to bring the subprime mess under scrutiny and responsible control.

John McCain and Kay Bailey Hutchison both attempted to introduce measures to do so, but were stymied by the efforts of Christopher Dodd, whose point man was our very own Zero.

Since the Lefties involved are incapable of making an argument without the use of 4 letter expletives, I shall simply link here and recommend anyone capable of rational discourse to comment on what said Lefties either already knew, but were too perfidious to say so or were simply ignorant of something in general knowledge for at least 5 years.; 4/28/10, 2:11 PM
Michael said...: Edutcher: I am afraid that there is a genuinely resolute nature to the economic ignorance of the left. They appear to glory in their stupidity, to take pride in their inability to understand the simplest concepts of finance as though it were all some sort of hocus pocus invented by the bankers to fleece the poor (who, by the way, don't have any money to fleece). Jaw dropping performance last night by our noble Senators.; 4/28/10, 2:19 PM
Michael said...: Madison Man: Relative to Goldman's survival without the govt. I think Blankfein answered that politely last night without pointing out that they and JP Morgan were forced to receive TARP money to disguise the fact that they were healthier by far than the sickest. He did it in two ways. First, two weeks before TARP was approved GS raised 50 billion from Warren Buffet in a preferred deal. Within a week of that funding they raised another 50billion in the secondary market. In both instances there was a demonstrated ability to raise capital in the collapsing credit market. So, probably they would have survived; 4/28/10, 2:52 PM
I'm Full of Soup said...: Do liberals own the exclusive rights to the word "reform"? Every f-ing dumb, complicated Rube Goldberg, govt-growing idea they dream up gets slapped with the word "reform".; 4/28/10, 3:07 PM
Opus One Media said...: Michael that is flat out wrong. The figures were closer to 5 billion in each case and not 50.

The money that got to GS came through AGI. When AGI got bailed out they met their obligation to GS who was insured against the loss. GS wasn't involved with a near miss of going under. However it would have had problems if he rest of the system went in the tank just like everyone would have.

CatherineM...

When traders hedge then take both a short and long position, something that the GS could not easily explain nor would some of the Senators comprehend. If you are going to short a stock you always keep a small long position so you don't get wiped out if the market turns wrong. That ratio is usually 3:1 or 4:1 but you always hedge the bet. In conservative houses like GS, the ratios are tighter but they exist and that was one reason why the puts and calls were looking so balanced.; 4/28/10, 3:11 PM
Dust Bunny Queen said...: If you are going to short a stock you always keep a small long position so you don't get wiped out if the market turns wrong

Not always.

It is prudent not to go naked, but not always. Sometimes you can't cover the short if the stock/security is in small quanties for availablity.

I don't allow it.; 4/28/10, 3:28 PM
Jason said...: I always go naked under my shorts.

Always. All my clients do, too.

What? We're talking securities, options and hedging strategies?

Nevermind.; 4/28/10, 4:01 PM
CatherineM said...: battump bump jason; 4/28/10, 4:06 PM
Jason said...: I'm always long, though.; 4/28/10, 4:26 PM
Dust Bunny Queen said...: I'm always long, though.

Unless it's really cold. Then you probably cover your......call.; 4/28/10, 4:36 PM
raf said...: Perhaps "soak the rich" can be thought of as an infusion, where the essence (in this case, "richness") is extracted into a solution (ostensibly the country-at-large, but more likely the politicians and their pets/owners). Like a teabag. Hey, another metaphor for the teapartiers...

wv:yoght. How you might pronounce it the first time you really taste it.; 4/28/10, 4:59 PM
Opus One Media said...: When our GS folks were talking long and shorts yessterday it was all hedge fund action.They may have rolled a position but this trading was extremely short term.

The disconnect was clear when the senators were talking long some really thought that meant long term (if you listened to the interviews on the various stations after). that's the only point i was making here.; 4/28/10, 5:10 PM
William said...: Of shitty deals and derivatives: For the past year, acting on the recommendation of many leading art critics,, Obama has had his feces bronzed. It is the feeling of the art world cognescenti, that the form and structure of Obama's turds capture the swirl and conflict of modern society and are the greatest artistic creation of our generation. In addition to their innate beauty, they also have some historical significance. The bronzed pile from the day of the recent health bill signing is significant not just for the volume and mass of its swirl, but for the importance of the day on which it was produced. It's a way for the proud owner to possess not just an object of beauty, but to also feel history in his own hands. These treasured turds will be offered for competitive bidding at Sotheby's, and there will be strict guarantees on the provenance and dating of these objets. The prices are expected to be high, but the price appreciation of these collectibles makes them a good investment......This is not, however, the end of the story. Obama will not stop producing turds, but there is no way to predict that the value of his future turds will be of the same worth as his current vintage. There is not just the problem of future shortages due to constipation (not likely) or how to value his diarrhea, but also how the futures of the Obama turd market impact on present holders of these offerings. Here Goldman Sachs' expertise will be of great use. If there was a secondary market for Obama turd futures, buyers would feel more comfortable purchasing his offerings. There is the possibility of a second term and even more objets d'art. How this will impact the value of current holdings is impossible to guess. And there is the possibility, however remote, that future art critics will not value his oeuvre as highly as the current one. There are already dark rumors that some of the most textured, nuanced piles were in fact the work of Bill Ayers. Ridiculous, but such mutterings impact the market. We definitely need a secondary market for Obama turd futures, and Goldman is just the company to make this whole shitty deal happen.; 4/28/10, 5:48 PM
Opus One Media said...: William said...

......nothing.....absolutely nothing.....; 4/28/10, 5:58 PM
CatherineM said...: http://online.wsj.com/article/SB119759714037228585.html?mod=hps_us_whats_news#articleTabs%3Darticle

Dec 2007 - Whiz kids who calculated and saved their investors.

April 2010 - high stakes cheatin' gamblers.; 4/28/10, 6:03 PM
CatherineM said...: http://www.newsweek.com/id/236936

This is an excellent synopsis of what happened.

"Those same kinds of crappy collateralized debt obligations (CDOs) went up in value in 2006. In fact, had this same bet been made nine months earlier, Paulson would probably have lost a huge sum and IKB would have been a winner."

Crappy!; 4/28/10, 6:05 PM
Michael said...: HD House: You are absolutely right and I was wrong by a factor of 10. The Buffet investment was 5 not 50 billion. The secondary I think was 50. The AIG payments were equally helpful but not in the form of survival capital. By that point the AIG counterparty payments were in the form of profit. Good catch on the 5 bil; 4/28/10, 6:44 PM
Opus One Media said...: Thanks Michael...I wasn't trying to be pithy.

I still think GS secondary was 5.8 billion or so. 50 seems very high as in there wasn't that much free float money available in the universe but could be wrong.

Again the point I raise is that the trading desks are not interested in tomorrow and rarely carry a position overnight unless they get stuck with it. CatherineM seems aligned to this observation as does my nemisis Dust Bunny.

These guys are day traders with a big stash and they carry the stun guns that can stampede the market, which they did.; 4/29/10, 6:34 AM